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Points/Discount Points/Origination Points or Fees
Each point adds an additional fee to your closing costs equaling 1% of your loan amount. (i.e.: 1 point on a $100,000 would be an additional charge above and beyond your closing costs of $1,000). Points charges are the margin or markup done by both lenders and mortgage brokers. The reason a mortgage company can offer no-points loans is that there is a rebate (industry wide referred to as "yield spread") being offered by the lender to the broker who covers the margin necessary for the mortgage company to make a profit. (Please note, however, that you may be charged these fees in addition to the fact that a rebate is being offered by the lender. The deciding factor? How much profit that particular mortgage company feels they need to make.)
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Administration Fee
This fee may be charged by both the lender and a mortgage broker or bank. It is generally considered to be extra profit over and above the points, discount points, origination points or fees and the rebate which may be offered. Industry wide we refer to it as a "junk fee."
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Application Fee
It is the opinion of our broker that this fee falls into the same category as #2 above.
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Appraisal Fee
This is required by the lender to show that the property they are considering lending money on is worth the amount that the buyer is paying. Lenders have a list of 'approved appraisers' and will usually accept their appraised values.
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Credit Report
This allows the lender to review the buyers' credit history. This is much more than a simple consumer credit report. A credit report for a mortgage generally utilizes all three major credit reporting agencies (i.e. TRW, Equifax and Trans Union) as well as extensive verbal verification with previous landlords, etc.
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Flood Certificate
Currently most lenders of first mortgages are requiring a flood certificate. The lender has the option to require a floor certificate on any property, whether it is on a hill or in an old river bed. It is the lender's way of verifying that the house is not in a 100 year flood zone. If a flood certificate is unnecessary, this fee is waived.
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Title Insurance
This is the cost to ensure that the title being transferred is not 'clouded.' These fees vary between title companies, so the amount appearing on the estimates may vary as well (generally not by much however). You do have the right to choose which title company you prefer if you have a preference. Just tell your loan officer or Realtor which you'd like to use.
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Escrow
A neutral third party is essential when handling a real property transaction and their role is to see that both parties perform all of their previously agreed upon terms to complete the transaction. The fees charged for this vary slightly and, like the title insurance company, you may choose who you'd like to use for escrow if you have a preference.
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Processing Fee
This cost is commonly considered like #2 and #3 above... a junk fee. These fees generally go to the mortgage company to cover the cost of packaging the buyers' loan and making sure that all of the lenders' requirements are met prior to loan submission. This may include the administration of tasks such as ordering the title insurance, appraisal, opening escrow, sending out verifications of deposit and employment, etc.
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Underwriting/Document Preparation Fees
Lenders charge this fee to review the buyers' loan package. This review process is called "underwriting" and lenders charge varying amounts for this. Mortgage brokers generally decide which lender your loan will be submitted to either at the time of locking or after the entire package is organized and ready to be submitted, so the amount listed on the Good Faith Estimate may be different than the actual charges at closing if the original lender's rates quoted are not the lender you are submitted to.
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County Transfer Tax
This fee is currently being charged in a limited geographic area at this time. It is a fee charged by the county (over and above title insurance fees) to transfer the property title to the new owner's name.
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Recording Fees
This covers the cost of recording the documents upon funding. This is a procedure where someone from the title company physically goes to the County Recorders office and pays a fee to the County to record the Trust Deed. Fees vary but are generally based on the number of pages of the transaction being recorded.
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Tax Service Fee
Lenders want to know if borrowers become delinquent on their property taxes. They pay a company to notify them in the event this happens on any of their loans. Even when buyers are required to impound property taxes this fee is required.
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Wire Fees
This fee covers the lenders' expense to transfer (wire) the buyer's funds from its' main bank to the title company for funding.
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Re-conveyance Fee
This is a fee charged to those who are refinancing their loan. This is the fee charged by the lender who is being paid off. In other words... they charge you for the option you are taking of paying off their loan. This is their paperwork charge.
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Prepaid Interest
Should the buyer close escrow on the last day of the month, this amount would be 1 day. Should they close on the first day of the month, the amount would be a full month of interest. Since the closing date is usually undetermined at the time of the completion of a Good Faith Estimate, this fee will probably vary from that originally quoted.
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Property Tax Reserves
When a buyer puts down less than 20% lenders generally require tax reserves. The actual number of months of reserves required depends directly on the month of closing of the loan and the method of payment required by your state. These funds being asked for up front are actually not closing costs (though you are required to pay them at the same time). They are the property taxes for your new home and they will be paid to your county at the appropriate time. Any reserves remaining in the account will be refunded upon satisfaction (pay-off) of the loan upon sale of the property.
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Hazard Insurance
Purchasing: The lenders require one year of Hazard (also known as Home Owner's Insurance) to be paid upon purchasing a new home. Additionally, two months hazard insurance impounds will generally be required on loans with less than 20% down. Refinancing: If you are within 6 months of renewal, lenders may require your renewal premium or a portion of it be placed in escrow until renewal time.
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PMI (Private Mortgage Insurance)
PMI is required on most loans where less than a 20% down payment occurs. This is insurance which you pay for with the lender as the beneficiary. It protects the lender in the event that the borrower decides to discontinue making mortgage payments. This coverage is provided by an insurance company who must approve the loan in addition to the lender's approval since this company is now accepting some of the risk in place of the lender. The annual cost for this insurance coverage generally varies based on the amount of down payment. Some loan programs allowing less than 20% down are now available with no PMI, but with a slightly higher starting interest rate. See Newsletter #1 for important additional information on this topic.
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